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Column: Trumponomics? He would impose the equivalent of a huge tax hike

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Column: Trumponomics? He would impose the equivalent of a huge tax hike

If Donald Trump becomes president again, one of his first moves will take money out of your pocket just as a tax hike would.

Trump hasn’t outlined much of an economic program, but he has promised to impose a massive increase in tariffs on imports from almost all foreign countries — everything from bananas and baby formula to computer chips and machine parts.

And that’s the equivalent of a tax hike, because the costs of tariffs are paid almost entirely by the buyers of imported goods, whether they are Walmart shoppers or U.S. businesses that rely on foreign components.

Trump boasts that the tariffs he imposed in 2018 and 2019 brought billions of dollars into the Treasury, and promises a similar revenue increase in a second term. “The United States will make an absolute FORTUNE,” his campaign website says.

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Here’s the problem: Contrary to what the former president seems to think, tariffs aren’t paid by foreign companies or governments. They’re initially paid by the U.S. companies that import the goods, but those importers almost always pass the cost on to consumers in the form of higher prices.

This time, Trump is proposing a “universal” tariff of 10% on goods from every country in the world. He has also mused about megatariffs of more than 60% that he wants to slap on China in hopes of forcing Beijing to lower its tariffs and treat U.S. companies fairly.

Economists say that either of those proposed tariffs would produce price increases and push inflation upward.

That’s why traditional free-trade Republicans like Nikki Haley and Mike Pence think Trump’s proposal is a bad idea, as does almost every practicing economist.

“It’s lunacy,” said Adam Posen, president of the Peterson Institute for International Economics.

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But wait — there’s more.

Those increased costs would hit low-income people hardest, because they spend a larger share of their income on goods.

“If baby formula goes up 25%, low-income earners will feel it more than people on Wall Street,” Posen said. “The burden of the tax falls disproportionately on poor people.”

And when the United States imposes tariffs, the targeted country almost always reciprocates.

“They’re not just going to roll over,” Posen said. “And they’re going to be strategic; they’ll pick industries where the U.S. will lose huge market share, because the retaliatory tariffs will drive the price of American products up.”

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We have recent experience with all of these problems, thanks to Trump’s earlier tariffs. Take California almonds, the state’s most valuable export crop.

Until 2018, China bought almost all its almonds from California. But after Trump slapped tariffs on a range of Chinese products that year, China retaliated with tariffs on U.S. agricultural exports, including nuts.

California almond sales plummeted, and Australian growers rushed in to fill the gap. In a report for the Giannini Foundation of Agricultural Economics at UC Davis, economists Sandro Steinbach and Colin A. Carter calculated that the episode cost the state’s almond growers about $875 million in lost income.

Other U.S. exporters to China, from soybean farmers to truck manufacturers, took similar hits.

Those costs might have been tolerable if the tariffs had accomplished their main goal, which was to protect and promote manufacturing jobs in the United States.

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But they didn’t. A slew of economic studies found that Trump’s tariffs had little or no positive effect on the industries they were designed to protect — and that the negative consequences for the economy resulted in a net loss of jobs.

“Import tariffs on foreign goods neither raised nor lowered U.S. employment in newly-protected sectors,” a team of economists led by David Autor of MIT reported last month.

For example, Trump wanted to protect steel industry jobs from foreign competition, but his tariffs on foreign-made steel didn’t help much. By the end of his presidency in 2021, the steel industry had lost several thousand jobs.

Meanwhile, those tariffs hurt the more numerous jobs in industries that buy foreign-made steel, including automakers and appliance manufacturers.

“For every one steel-producing job, we have about 80 steel-consuming jobs,” Erica York of the conservative-leaning Tax Foundation noted. “All those industries got hit by higher costs, and many of them lost jobs ” — about 75,000 total positions, according to one study.

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But Trump’s tariffs had an important side effect, Autor and his colleagues reported.

“Despite the trade war’s failure to generate substantial job gains, it appears to have benefited the Republican Party” in the Rust Belt, the economists wrote.

Trump “may have garnered support from voters who were skeptical about the favorable economic consequences of tariffs, but who appreciated [his] intention to confront Chinese competition and protect U.S. jobs,” they wrote.

Trump has long described himself as a “Tariff Man” — convinced, in his words, that protectionism “will always be the best way to max out our economic power.”

He’s wrong about that.

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The new tariffs he’s proposed won’t save the economy. But they may help Trump win industrial states like Pennsylvania, Ohio, Michigan and Wisconsin — and that may have been the point all along.

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Netflix's password-sharing crackdown is paying off as profits beat Wall Street's forecast

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Netflix's password-sharing crackdown is paying off as profits beat Wall Street's forecast

Netflix’s victory lap as the leader in streaming continued Thursday, as the company said it increased its subscriber base by 9.3 million to nearly 270 million in the first quarter.

Revenue was up 15% to $9.37 billion in the first quarter, the Los Gatos, Calif., streamer reported. Net income was $2.3 billion, compared with $1.3 billion in the same period in 2023.

The company beat Wall Street’s estimates on revenue, subscriber additions and net income. Analysts on average had projected that Netflix would increase its customer base by around 5.5 million subscribers, according to FactSet.

Netflix has impressed investors as the company cracks down on password sharing, grows its lower-priced ad-supported subscription tier and puts out a steady stream of popular original programs.

The steamer’s stock price has increased 30% so far this year and has recovered more than two years after subscriber losses and disappointing results sent it spiraling. Its shares closed at $610.56 Thursday, down 0.5%. The shares fell about 5% in after-hours trading.

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“When analyzing key metrics such as subscribers, profitability, and audience demand, it’s clear that Netflix is pulling away from the competition and everyone else is fighting for second place,” Parrot Analytics analyst Wade Payson-Denney wrote in a report.

Netflix has remained the dominant subscription streaming platform in part because of its content prowess with licensed titles, such as “Suits,” and original programs, including international productions, K-dramas, reality shows, live events and sports documentaries.

In a letter to shareholders Thursday, the company forecast revenue growth of 13% to 15% this year. The number of sign-ups for subscriptions with ads grew 65% in the first quarter.

“We’re off to a good start in 2024,” the letter said.

New shows have included the live-action version of “Avatar: The Last Airbender,” based on the popular Nickelodeon series. The series was renewed for two additional seasons. Other popular titles include the fantasy adventure movie “Damsel,” drama “Griselda” and romantic limited series “One Day.”

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Rivals are still trying to match Netflix’s recommendation technology. Walt Disney Co. Chief Executive Bob Iger called Netflix’s technology the “gold standard.” “We need to be at their level in terms of technology capability,” Iger said at a Morgan Stanley conference this year.

lthough many analysts are bullish on Netflix, some note that its growth prospects are limited in the United States and Canada, where many households already subscribe to the platform.

The streamer also needs to replenish its reservoir of popular shows, as some of its series with large fan bases, such as “Stranger Things” and “Cobra Kai,” are approaching their final seasons.

Netflix has been adapting popular manga and anime series such as “One Piece” and working with producers including “Game of Thrones” showrunners David Benioff and D.B. Weiss. Benioff and Weiss, alongside co-creator Alexander Woo, adapted the Chinese sci-fi trilogy “Remembrance of Earth’s Past” into the show “3 Body Problem,” which launched last month.

The company also is investing in live events and sports-related content, including signing a major deal with the WWE to bring its flagship weekly pro wrestling show “Raw” to Netflix in January.

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Analysts are looking for more details about Netflix’s movies strategy, after its longtime film chief Scott Stuber left his position and was replaced by Dan Lin, founder of production company Rideback.

Under Stuber’s leadership, Netflix collaborated with high-profile, A-list stars and directors and won critical acclaim for movies including “The Power of the Dog” and “Roma,” though winning an Oscar for best picture has proved elusive.

Critics have pointed out that Netflix may make more money by investing in series rather than films because there are more hours of content for viewers to consume. Netflix executives have maintained that having original movies on the platform is a key part of their strategy.

“There is no appetite to make fewer films, but there is an unlimited appetite to make better films always,” Netflix co-Chief Executive Ted Sarandos said in an earnings presentation.

Another change that’s afoot — Netflix said starting with its first quarter in 2025, it will no longer provide quarterly membership numbers.

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China’s highflying EV industry is going global. Why that has Tesla and other carmakers worried

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China’s highflying EV industry is going global. Why that has Tesla and other carmakers worried

The U.S.-China rivalry has a new flashpoint in the battle for technology supremacy: electric cars.

So far, the U.S. is losing.

Last year, China became the world’s foremost auto exporter, according to the China Passenger Car Assn., surpassing Japan with more than 5 million sales overseas. New energy vehicles accounted for about 25% of those exports, and more than half of those were created by Chinese brands, a shift from the traditional assembly role China has played for foreign automakers.

“The big growth has happened in the last three years,” said Stephen Dyer, head of the Asia automotive and industrials unit at AlixPartners, a consulting firm. “With Chinese automakers making inroads for most of the market share, that’s a huge challenge for foreign automakers.”

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China’s rapid expansion domestically and abroad has added fuel to a series of clashes between the U.S. and China over trade and advanced technology, as competition intensifies between the two superpowers.

The U.S. has lofty goals for expanding its own EV industry. California, which accounted for 37% of the nation’s electric car sales as of 2022, aims to phase out purchases of new cars that run on fossil fuels by 2035.

Concerns about Chinese oversupply have come just as a broader slowdown in sales has hit EV makers. Tesla announced Monday that it would lay off more than 10% of its workforce in an effort to reduce costs and increase productivity.

In the company’s last earnings report in January, Chief Executive Elon Musk warned about the competitiveness of Chinese brands. BYD, China’s largest EV maker, surpassed Tesla in car sales last year.

“If there are not trade barriers established, they will pretty much demolish most other car companies in the world,” Musk said.

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This year, Manhattan Beach-based Fisker Inc., an electrical vehicle startup, cut 15% of its workforce, had its stock delisted and said it might file for bankruptcy protection. Apple also recently announced an end to its long-held ambitions of making a self-driving EV.

One area in which Chinese automakers handily beat Western competitors is on price, thanks to government subsidies that supported the industry’s initial rise as well as cheap access to critical minerals and components such as lithium-ion batteries, which account for about a third of the overall cost of production.

“It always had these ingredients waiting around,” said Cory Combs, an associate director for Chinese energy policy at the consulting firm Trivium China. “It was kind of a magic moment for these things to come together.”

That enabled the success of BYD, which started producing lithium-ion batteries in 1996 and making cars in 2005.

In March, BYD cut the price of its cheapest EV model in China to less than $10,000. According to Kelley Blue Book, the average EV retail price is $55,343 in the U.S., compared with $48,247 across all vehicles.

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While pricing wars have forced Chinese automakers to slash profit margins at home, they can charge more in overseas markets, further incentivizing exports as domestic growth has slowed. According to research firm Gavekal Dragonomics, demand in China has cooled due to the removal of tax breaks and an increase in the use of public transportation post-pandemic.

“There is a ton of pressure, especially if you are a smaller player, to find a market that is less competitive,” Combs said. “And every market is less competitive than China’s.”

Though 27.5% tariffs have in effect locked Chinese EVs out of the U.S. market, the fear that the cheaper models could eventually undermine American automakers has started to spread.

The Alliance of American Manufacturing warned in a February report that allowing Chinese EVs into the country would be an “extinction-level event” for the U.S. auto industry. The group also cited the risks of Chinese auto companies building facilities across the border in Mexico that could circumvent tariffs.

When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question

— Janet Yellen

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After a trip to China in April, Treasury Secretary Janet L. Yellen expressed concerns about government-funded overcapacity in Chinese manufacturing of electric vehicles, batteries and solar panels. She noted that other advanced and emerging markets shared those worries, and compared the oversupply to a flood of low-cost Chinese steel hitting the global economy more than a decade ago.

“When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question,” Yellen said.

The European Union has opened an investigation into government subsidies utilized by China’s EV industry and whether such support violates international trade laws.

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China’s state news agency pushed back on claims of overcapacity in an April article, which said exports accounted for 12% of China’s EV sales last year. It attributed the industry’s success to competitive pricing and technology, rather than government subsidies.

After meeting with German Chancellor Olaf Scholz in April, Chinese President Xi Jinping decried protectionism in other countries and said Chinese EV exports have helped ease global inflation and combat climate change.

How the U.S. is addressing the emergence of China’s EV dominance has already become a hot-button issue for the presidential election in November.

President Biden has encouraged the domestic expansion with the passage of the Inflation Reduction Act, which includes electric vehicle tax credits for U.S. manufacturers, but not if they are sourcing minerals and materials from “foreign entities of concern,” such as China. Meanwhile, presumptive Republican nominee Donald Trump has claimed electric car manufacturing will reduce auto industry jobs, and called for a rollback of the EV-friendly policies enacted during Biden’s term.

Politicians from both parties have proposed even harsher tariffs on Chinese-made EVs should they try to enter the U.S. market, prioritizing the protection of U.S. jobs over goals to reduce carbon emissions.

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“That will make it even more important for Chinese companies to set up local assembly operations to minimize those costs,” said Gregor Sebastian, senior analyst at the New York-based research firm Rhodium Group. “A lot of companies are adopting a wait-and-see approach.”

Even without Chinese auto imports, the technology within the vehicles has unnerved U.S. officials. In March, Biden announced an investigation into Chinese-made “smart cars” and the data the internet-connected vehicles could collect on American users. Collaborations between U.S. companies and CATL, the Chinese battery-making behemoth, have also been subject to greater scrutiny as tensions between the two countries have worsened.

But China has spent decades cementing its status as a global leader in procuring minerals and developing critical technologies such as EV batteries while the U.S. has fallen behind. That will make it harder now for Western automakers to wholly shut out Chinese suppliers, said Tu Le, founder and managing director of Sino Auto Insights, a consulting firm.

“If automakers are going to build affordable, clean-energy vehicles this decade, the only way that happens is by using Chinese batteries,” Le said.

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Money Talk with Liz Weston: Can my credit score really be marred over $20?

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Money Talk with Liz Weston: Can my credit score really be marred over $20?

Dear Liz: I have had great credit for years. Late last year, I somehow overlooked a $20 payment due from one of my credit cards. My score dropped by more than 50 points, from about 815 to 765. I quickly paid the $20 and contacted the issuer. They told me they were required by law to report my delinquent payment, which I found out was not true. I went back and forth with them, but they would not do anything to help. I did file an inquiry with one of the credit bureaus, but I was told there was nothing they could do without the issuer’s cooperation. I spoke with someone in the issuer’s corporate offices, but he could not have cared less. It turns out that this hit on my credit could last seven years — and all over $20. I charge thousands of dollars every year on credit cards and pay the balance every month. Is there anything else I can do to restore my credit to the previous levels?

Answer: The federal Fair Credit Reporting Act does require creditors to report accurate information to the credit bureaus. However, some people say they’ve been able to get their accidental late payments removed by writing “good will” letters to their issuers. These letters explain what happened, emphasize the customer’s previous record of on-time payments and politely request the issuer extend some good will by removing the one-time lapse from their credit reports.

Your issuer is under no obligation to grant your request, and some categorically say they won’t. But it can’t hurt to try.

You also can use this incident as a reason to review how you pay your credit cards. Setting up automatic payments to cover at least your minimum payment will ensure this doesn’t happen again. Keep an eye on your credit utilization as well. Aim to use 10% or less of your credit limits. If you find it difficult to keep your charges below that level, consider making multiple payments each month to keep your balance low.

The unexpected drop in your credit scores was painful, but the good news is that you still have great scores. This oversight is unlikely to have any lasting effect on your financial life. And if you continue to use credit responsibly, your scores will improve over time.

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Complicated condo question

Dear Liz: You recently answered a question about gifting a condo. I understood the first part of your answer: If the person receiving the gift lives in the condo for two of the last five years, then there is no capital gains exposure. The second part of your answer is a little confusing to me. You wrote, “However, her taxable gain would be based on your tax basis in the property: basically what you paid for the home, plus any qualifying improvements.” So, if my mother gifted her condo to me and she paid $50,000 for it 40 years ago, and the condo today is selling for $250,000, what is my capital gains exposure? To keep it simple, assume no capital improvements or other factors.

Answer: Living in and owning a home for two of the previous five years does not erase someone’s capital gains exposure. Instead, they’re entitled to exclude up to $250,000 of home sale gains from their income.

In the case you describe, your potentially taxable capital gain would be $200,000. That’s the selling price of $250,000 minus your mother’s tax basis (which is now your tax basis) of $50,000.

If you owned and lived in the home at least two of the previous five years, your exclusion would more than offset your gain, so the home sale wouldn’t be taxable. If you didn’t make it to the two-year mark, you could get a partial exemption under certain circumstances, such as a work- or health-related move. For more details, see IRS Publication 523, “Selling Your Home.”

Liz Weston, Certified Financial Planner®, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.

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